Auto-enrolment: what is it and why should I do it?
"So... what do you think about being auto-enrolled?". No, your boss didn't just ask what you wanted in your roll.
If you zoned out, they were talking about the government changes in relation to saving for retirement. It is now law that your employer must automatically enroll you into a pension scheme, and you will stay in it unless you opt out.
Previously, contributing to a workplace pension scheme was optional. However, there has been a long-term problem of people not saving enough for retirement, creating a huge strain on the government budget.
As you may have heard, money is pretty tight around here as it is. Once you add us living longer to the equation, and rising inflation, there is a bit of a problem.
As your boss was saying, the government's master plan is to auto-enroll you into a workplace pension.
You, your employer and the government (via tax relief) must contribute 5% of your annual earnings, creating a pension pot that can help you once you stop working (subject to certain criteria).
For you and I, it is a brilliant idea.
Firstly, it will allow you to actually enjoy your retirement as opposed to living off rice and beans (only joking). Additionally, as your employer and the government match all your contributions, it's essentially free money! Now who would turn that down? The 5% is also due to increase to 8% from next year, making the gains worth even more.
Let's put this into perspective and take Joe Bloggs, who is 25 and earns £30,000 per year. The 8% contributions is on anything over £5,800, meaning each year his pot will increase by £1,936. By the time he retires in 40 years' time, this would have increased to £77,000, and he has only paid for half of it! Of course there are a lot of assumptions in this example, however the benefits are clear to see.
Unless you have a chronic enjoyment of filling in paperwork and you can't turn down the chance to complete an opt out form, there aren't many good reasons to opt out.
I get some of you may see it as a pay cut and you want to spend your hard-earned money now, and that's fair enough. But I presume you also want to have money to spend once you retire? You may also already think you have enough, but hey, who would turn down free money?
However, there are some things to give serious consideration to. If you have debt, particularly credit card debt, then the cost of paying it off tends to be far more than the benefits you'll receive from paying into a pension. In this case, you should seek financial advice.
On the whole, there really is nothing to gain from opting out and the earlier you begin to save something the bigger your saving will be in the future. Taking some responsibility for yourself and contributing means that the government will have more money to keep our country ticking over in the future.
However, most importantly, the matched contributions will allow you to live a comfortable retirement. Instead of focusing on the money you lose now, try to think of the long-term benefit - I am sure you will thank yourself come retirement!